FSA has launched a consultation and discussion paper on proposals to bring the Client Assets Sourcebook (CASS) in line with EMIR. More generally, it wants to make CASS client money pooling provisions more flexible and address the problems identified during the Lehman and MF Global insolvencies.

The proposals cover the following:

  • implementing the EMIR provisions aimed at ensuring portability of client positions and margin held at CCP level when a clearing member becomes insolvent. EMIR requires any such positions to be “ported” to a back-up clearing member or returned to the client. FSA is proposing to exclude monies held by clearing member firms in a client transaction account with a CCP from the provision which would otherwise pool client money on the firm’s insolvency;
  • following on from the changes EMIR requires in relation to client margin held at CCP level, FSA proposes to extend its rules and allow similar choices for all client monies for any investment business. It plans to do this by introducing multiple client money pools. This will allow firms to create any number of sub-pools, designated and agreed between them and their clients. FSA is also considering mandating certain separate pools, for example to separate wholesale and retail client money. The new arrangements will have the effect of restricting shortfall to specific pools only, and allowing faster distribution of monies from non-contentious sub-pools when there is dispute in other pools;
  • more fundamental changes to CASS in the light of experience gained during the Lehman and MF Global insolvencies. The objectives of the review are to:
    • improve the speed of return of client assets following the insolvency of an investment firm;
    • reduce the market impact of an insolvency of an investment firm that holds client assets; and
    • achieve a greater return of client assets to clients following an insolvency of an investment firm.

FSA asks for comments on the EMIR-related proposals by 16 October and the remainder of the consultation and discussion issues by 30 November. (Source: Client Assets Regime: EMIR, Multiple Pools and the Wider Review)